In Some Areas, Renters Earn More Than Enough to Buy

One of the big challenges of real estate markets today is moving renters that want to buy into the homeownership column. Renters wanting to buy is the first step, but they have to come up with a downpayment and that’s where many are stymied. The job market is key, because everything starts with the availability of good paying jobs. Of course, a good paying job in Columbus, Ohio, is not the same as one in New York City.

NAR Research looked at renters’ ability to buy and identified the top 10 metro areas in the United States where a high percentage of renters earns more than they need to buy a home at the area median sales price. Not surprisingly, almost all of the metro area were in the Midwest and South, because in those areas, the gap between what people earn and what homes cost is narrower than it is in the Northeast and West.

Among the top 10, three are in Ohio: Columbis, Dayton, and Toledo. In these markets, almost 40 percent of renters earn more than enough to buy a median-priced home.

NAR looked at other criteria, too, and found that these markets were dynamic enough that jobs were being created.

Other top ten markets include Little Rock, Ark., St. Louis, and Atlanta. A couple were in Florida. Only one market, Ogden, Utah, was in a region other than the South and Midwest.

NAR’s research on these top 10 markets is one of the stories in The Voice for Real Estate news video for the week of August 15. Another story looks at tightening lending standards for commercial real estate by banks. For developers and investors, bank tightening will be felt especially in smaller markets, because it’s in these markets that bank lending is most important; in big cities, the lending options are more varied.

The video also looks at the rise of women in commercial real estate, among other statistical shifts the industry is seeing. The percentage of women among the newest practitioners in the field has almost doubled, which means the share of women could be quite a bit higher down the road, as those getting into the business now start gaining more experience, taking on bigger deals, and attracting more women to the profession.

Another story looks at NAR’s involvement in a recent White House conference on drones. NAR talks a lot about drones, something whose commercial use might seem remote to many real estate practitioners right now. But there’s a reason for NAR’s intense interest in the topic. It’s a new technology and it’s been important for NAR to work with the Federal Aviation Administration now, while it’s writing rules on the commercial use of the devices, to ensure the point of view of REALTORS® is represented. Given how important drones are likely to be for real estate marketing in the future (and also for appraisals, home inspections, and insurance adjustment, among other things), it’s crucial the rules be written in such a way that REALTORS® can use them, or work with companies that operate them, within a reasonable regulatory environment. As it is, the government’s commercial drone rule comes out in just a few weeks, so the issue is moving into the here-and-now.

Another issue NAR has been into quite a bit lately is wire fraud, because it’s a growing problem in real estate (downpayment are a tempting target), and the video points you to a notice you can include in your email signature line to remind consumers about precautions to take before sending sensitive information by email. The notice was written by NAR Legal Affairs and it’s an easy way for you to play a part in the broader effort to combat fraud. If one person is protected from sending money to a criminal in the mistaken belief it’s a title agent, a lot of good has been accomplished.

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Most renters have bad credit, that’s why they rent. The amount of money they have has nothing to do with buying.

M Rios

47 states have FHA mortgages available for scores down to 580 FICO.. It’s doubtful the story only involves “Most renters have bad credit”. But admittedly, there may be an indoctrination deficit, where many potential buyers with problem credit don’t know about programs to help them get in to homes.

Many people, have become freelance or self-employed in today’s economy and proving income is very difficult under today’s tightened lending regs.. In fact, one study has about 60 million people being self employed by 2020.

Proving your self employment income on a mortgage app involves showing tax returns, K-1s and/or bank statements (deposits) for the lenders that accept them. On business tax returns, they look at your K-1, which shows your net profits. They don’t look at your gross income. Many loan originators will encourage buyers to not take any write-offs for a certain year or two so the net income will show higher when trying to prove income.

There’s also the “savers are losers” situation we have now with ZIRP and the possibility of NIRP here in the US.. At .75% for savings and about 1.25% on 1 year CDs coupled with a 2%-3% inflation rate (possibly more according to some), growing money passively for a down payment and closing costs is extremely difficult. That means that additional effort to grow money by using disposable income is needed.

Lastly, there’s the convenience factor.. many renters are looking for things like convenience, amenities and community and they don’t mind paying for it. Many just simply don’t want to deal with the hassle of owning. They have money and are exercising their choice on where to spend it.

Fact is, people ARE buying houses and in many areas the housing market is strong. Problem many see is that millennials, with their enormous population size (comparable to the baby-boom generation), aren’t buying the way and in the numbers that most feel they should be.

Also, the advent of Trended Credit Data on Fannie loans will help give a better picture of how people are using credit and allow lenders a more granular view when approving borrowers. This also includes the usage of utility bills and other payment history that aren’t typically reported to the bureaus. This is important, because there’s a large swath of younger people who simply have zero tradelines on their credit reports, or haven’t taken out any loans yet to establish credit. But they have Utilities, Internet, Cell phone bills, Netflix and other monthly payments that can now be looked at under Fannie’s Trended Credit Data program.

Another consideration with regard to “…renters who earn more than enough to buy” is lifestyle choice. Renting an amenity rich apartment (doorman, concierge, gym, rec room, swimming pool, salon, cleaners, meeting rooms, etc.) cannot compete with a single family detached residence where routine upkeep and maintenance are status quo, for those that prefer an “easier” life.
It is a waste of money?
For them, no. Value, whether tangible or intangible is always a matter of perception.

I would like to add that financially savvy individuals who are more keen on association dues and other expenses related to ownership of a condo in Telluride and Mountain Village, Co would rather rent after going through the buying process. Unfortunately in Telluride, Co., where I live and practice real estate, HOA fees can be as expensive as a the actual mortgage payment for most ski-in/ski-out condos and therefore, I get many clients who choose to rent over purchasing a property in the area.